Table of Contents
Table of Contents ..................................................................................................................................................... 1
List of Exhibits.......................................................................................................................................................... 1
Trends and Issues Affecting Freight Transportation in Southeastern Minnesota ............................................ 2
Introduction and Background ............................................................................................................................ 2
Changing Demographics: Older, More Concentrated Populations ................................................................ 3
The Emergence of the Ruralplex ....................................................................................................................4
Structural Changes to the U.S. Economy .......................................................................................................... 5
The Shift from Manufacturing to Services .................................................................................................... 5
The New American Energy Revolution ........................................................................................................... 17
Changing Trade Patterns and the Panama Canal Expansion ........................................................................ 23
List of Exhibits
Exhibit 1: Population Trends by Age in Minnesota and the Southeast Region .................................................4
Exhibit 2: Minnesota Ruralplex Regions ................................................................................................................4
Exhibit 3: World Merchandise Trade by Major Product Groups ....................................................................... 8
Exhibit 4: U.S. Merchandise Trade by Major Product Group............................................................................. 8
Exhibit 5: U.S. NAFTA Trade, 2004-2011 .............................................................................................................. 10
Exhibit 6: Minnesota NAFTA Trade, 2004-2011 .................................................................................................. 10
Exhibit 7: Exports of Goods from Minnesota Metro Areas (excluding the Twin Cities), 2010....................... 12
Exhibit 8: Rochester’s Export Destinations by International Economic Region ............................................. 12
Exhibit 9: Global Sourcing & Supply Chains: The Boeing 787 Dreamliner ...................................................... 14
Exhibit 10: Logistics and Supply Chain Management Evolution ....................................................................... 16
Exhibit 11: Lower 48 States Shale Oil Plays .......................................................................................................... 18
Exhibit 12: Hydraulic Fracturing Process for Shale Oil and Gas Extraction..................................................... 19
Exhibit 13: Silica Sand Mining Operations in Wisconsin ...................................................................................20
Exhibit 14: Frack Sand Mining Process – Winona Operations .......................................................................... 21
Exhibit 15: Total Renewable Net Electricity Generation – Minnesota, 2010 .................................................... 23
Exhibit 16: Southeastern Minnesota’s Contribution to State Crop and Livestock Production ......................24
Exhibit 17: Grain Container Exports by Originating State ................................................................................. 25
Exhibit 18: North American Landbridge Routes from Coastal Gateways ......................................................... 27
Exhibit 19: U.S. Grain Exports ...............................................................................................................................28
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Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Trends and Issues Affecting Freight Transportation
in Southeastern Minnesota
Introduction and Background
The regional freight study for Southeastern Minnesota is defined by a study area representing eleven
counties that define MnDOT District 6, as well as Economic Development Region 10:
1. Dodge
2. Fillmore
3. Freeborn
4. Goodhue
5. Houston
6. Mower
7. Olmsted
8. Rice
9. Steele
10. Wabasha
11. Winona
The purpose of this working paper is to identify and explore broad trends and issues that impact the
Southeastern region of Minnesota with respect to future freight mobility and economic development.
These issues and trends will help establish areas for further exploration during the stakeholder
outreach process and subsequent analysis tasks. The paper discusses these trends and issues with
regard to freight mobility in the region and likely impacts on the ability of the region to attract and
maintain business to support economic development and job creation.
Promoting economic development and related job growth requires regional economies to maintain
existing business and attract new ones. Access to efficient freight transportation is a key element in
business site selection. Competing in the global market environment has raised the importance of
efficient, reliable, and secure supply chain networks. In business vernacular, the “supply chain” is a
group of physical entities such as manufacturing plants, distribution centers, conveyances, retail outlets,
people and information which are linked together through processes (such as procurement or logistics)
in an integrated fashion, to supply goods or services from source through consumption. Certainly retail
and manufacturing operations rely heavily on supply chain networks, not only to meet the supply
needs of their customers but also to contribute to their profitability. Freight transportation has a
critical role in a company’s site selection decisions. However, it isn’t just the physical facilities and
infrastructure that are important. The conditions in an area that drive pricing, safety, and security in
logistics are equally important. Resiliency is a key criterion, that being access to a network which
offers mode choice, service flexibility, and reliability – not dependent on only one or a few components
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Southeast Minnesota Regional Freight Study • Freight Trends and Issues
which might fail. The idea of resiliency is to return to normal or near normal business conditions as
quickly as possible in the event of a service interruption of some sort, for example highway closures.
Changing Demographics: Older, More Concentrated
Populations
Developed countries, including the U.S. are facing a trend likely to have implications for our economy
in the future; an aging population:
“In 1900, nearly two-thirds of Minnesota’s population lived in rural areas (66%) and threefourths of the rural population lived on a farm (74%). By 2000, after rapid growth in urban
areas and little growth in rural areas, only 29 percent of the state population lived in rural
Minnesota and only 10 percent of the rural population lived on a farm.” 1
The U.S., like much of the world, is in the midst of a long term migration of people choosing to live in
more densely populated urban areas: More than four out of five people in the United States live and
work in urban areas. 2 At the turn of the century, farm populations in Minnesota made up nearly half
(49%) of the state’s entire population; today the farm population of Minnesota is less than 3 percent of
the total population. Today over 83 percent of the U.S. population live and work in urban areas. In
Minnesota, 74 percent of the population is categorized as “urban”. 3
Between 2010 and 2050, the United States is projected to experience rapid growth in its older
population. In 2050, the number of Americans aged 65 and older is projected to be 88.5 million, more
than double its projected population of 40.2 million in 2010. 4 Minnesota’s population is projected to
grow to 5,709,700 by 2015 and 6,446,300 by 2035. The Twin Cities suburbs and the Rochester and St.
Cloud regions are all expected to see substantial growth over the next 30 years. The continued aging of
the baby boom will produce an explosion in the number of people aged 55 to 69 during the coming
decade. Over the longer term, between now and 2035, populations over age 65 will more than double,
from 623,200 in 2005 to 1,400,000 in 2035. By contrast, the population under age 65 will grow only
10 percent. 5 The line graphs in Exhibit 1 show population projects by age for Minnesota and for the
Southeast Economic Development Region 10 (EDR-10).
1
R. Thomas Gillaspy, The Demographics of Ruralplexs. Rural Minnesota Journal, January 2006. page 33.
U.S. Census, 2009
3
U.S. Department of Agriculture; Economic Research Service. State Fact Sheets: Minnesota.
http://www.ers.usda.gov/StateFacts/MN.htm
4
U.S. Census Bureau, 2011 National Total Population Estimates: http://www.census.gov/prpest/index.html
5
MN Department of Administration, Office of Geographic and Demographic Analysis: Projections –
Population and Characteristics of the Future. http://www.demography.state.mn.us/projections.html
2
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Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Exhibit 1: Population Trends by Age in Minnesota and the Southeast Region
Source: Minnesota Department of Administration, Office of Geographic and Demographic Analysis Data
graphed by CDM Smith – note that the scales for the two graphs differ
In 2010, the eleven counties making up the Southeast region had a population of 508,610 people and
represented 9.3 percent of the state’s total population. The statewide and southeast regional
population compositions by age are nearly mirror images of one another. The line graphs show
current and predicted age population trends, for the population segregated into 20-year groups. While
age groups under 60 years of age show modest or no gains over the 25-year forecast period,
populations aged 60 to 79 years are predicted to grow approximately 70 percent for both the state
and the region, while the population 80 years and older is projected to grow 98 percent in the region,
and 111 percent statewide.
The Emergence of the Ruralplex
Exhibit 2: Minnesota Ruralplex Regions
Before his retirement in 2012, Minnesota State
Demographer Tom Gillaspy explored the changing
demographic dynamics of Minnesota’s rural landscape
and helped coin the term “ruralplex”. Dr. Gillaspy
argues that traditional ways of thinking about rural
Minnesota in terms of county boundaries and Economic
Development Regions no longer serve to adequately
describe the profound changes taking place in rural
Minnesota. Instead, Dr. Gillaspy suggests an alternative
is to think rural communities as specially separated
neighborhoods with shared characteristics. Under this
premise, the state is organized into five ruralplex areas
and one metroplex. These new geographies are defined
by combining existing counties with similar traits for
the sake of data and analysis. In the ruralplex
geography shown in Exhibit 2, Goodhue, Olmsted and
4
Source: Rural Minnesota
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Rice Counties become part of the Metroplex extending from Rochester through the traditional metro
counties up through St. Cloud.
The remaining EDR 10 counties are combined with EDR 6E and EDR 9 to the west and northwest. In a
2006 essay on demographic changes of the Minnesota’s ruralplex regions for the Rural Minnesota
Journal, Dr. Gillaspy notes that several regions, including the Southeastern River Valley will see slow
labor force growth in the coming years, due to the declining populations in young people. The
conclusion drawn from this trend is that “future economic growth will depend almost exclusively on
increased per-worker productivity”. 6
Structural Changes to the U.S. Economy
In our modern global economy, cost-effective, time-sensitive transportation services are increasingly a
strategy for competitive advantage in manufacturing, mining, agriculture, and service-based
industries. Businesses compete regionally, nationally and globally for raw materials, parts, and labor.
The globalization of the world economy has grown at a rapid pace over the past several decades and
virtually all sectors of the U.S. economy now compete against global competitors. Advances in
technology and management practices allow U.S. firms to employ strategies that enable customized
products for mass-market distribution. In this environment, the ability of state and regional
infrastructure managers to deliver robust transportation systems is directly tied to the economic
competitiveness and community vitality:
“The changes at work in the American economy are profound. The agricultural and
manufacturing economy of the 20th Century has evolved. Services have become the fastestgrowing sector of the economy. Logistics and transportation sectors are second…The American
economy demands increasing volumes of trade if it is to continue to grow. The economic sectors
that remain robust will require far more trade and travel per unit of output than was required
30 years ago.” 7
The Shift from Manufacturing to Services
In the early 1980’s, manufacturing was the leading sector the U.S. economy, roughly equal in economic
contribution of the Services and “FIRE” (finance, insurance, and real estate) sectors combined.
However, over the course of the past several decades, the services sector of the U.S. economy has
significantly outpaced manufacturing growth as a percentage of Gross Domestic Product (GDP). By
2005, the service industries sector had increased its share of the national economy to account for 68
percent of current dollar GDP. 8 However, it must be noted that while manufacturing as a share of the
U.S. economy has declined, by value the U.S. remains the world’s leading manufacturer: The United
States remains by far the world’s leading manufacturer by value of goods produced. It hit a record $1.6
trillion in 2007 – nearly double the $811 billion of 1987. For every $1 of value produced in China
factories, the United States generates $2.50. 9 By value, the U.S. produces 21 percent of the worlds
6
Ibid. Gillaspy, January 2006.
Transportation Invest in Our Future: America’s Freight Challenge. American Association of State
Highway and Transportation Officials (AASHTO), May 2007.
8
BEA News, Gross Domestic Product by Industry for 2003: www.bea.doc.gov/bea/newsrel
9
New York Times; Is Anything Made in the U.S.A. anymore? You’d be surprised. February 2, 2009
7
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Southeast Minnesota Regional Freight Study • Freight Trends and Issues
manufacturing output, while China is second at 15 percent, and Japan third at 12 percent.10 In terms of
manufacturing exports, the European Union and China lead all countries.
Developing countries, by definition, are changing the structure of their economies as well, moving
away from sustenance economies toward greater reliance on manufacturing and striving to become
globally competitive with developed counties. In general, the U.S. economy is continuing to shift from
basic, resource-oriented industries, such as agriculture, mining and basic manufacturing, toward a
more diverse industry mix including high value-added industries such as microelectronics, medical
technology and aerospace. In turn, demand for moving goods is shifting from bulk movements via rail,
truckload and water to small, higher-value shipments via air freight, courier and less-than-truckload.
This is particularly true in high-tech industries.
It should also be noted that the U.S. is a net exporter of services and leads the world in service exports:
The United States has been losing ground in terms of its share of global goods exports, as one
would expect given the rapid economic growth of many developing countries. Over the last five
years, products made in China, India, Brazil, and the Middle Eastern countries have made up an
increasing share of world goods exports. The United States, though, is the global leader in service
exports; selling $525.8 billion worth to foreign residents in 2008. This represented 13.8 percent
of global commercial service exports, making the United States by far the world’s dominant
service exporter.
Exports of services cover transportation and related services (e.g., tourism), educational services,
intellectual property (royalties and licenses), financial services and other private services. In 2009, the
service sector contributed a positive $148.7 billion toward the overall U.S. trade deficit. In terms of
Minnesota’s service industry exports: “No official comprehensive state-level export data for services
are available. Estimates by DEED show that Minnesota service exports were valued at $9.8 billion in
2009, up 2 percent from 2008.” 11 Further, an analysis by the Brookings Institute found that the
Minneapolis/St. Paul Metro region ranked 22nd in service export intensity among all metropolitan
areas and second among Great Lakes Metropolitan Areas.12
Globalization
The “Global Economy” is an often used phrase to describe the increasingly integrated and complex
global systems of production and exchange between countries. Over the last several decades,
economic activity has been shifting from traditional industrial countries like the U.S. to developing
countries such as China, India, Russia, and other engineering economies throughout Asia and South
America. The largest share of U.S. GDP is consumption (71%) with an increasing share of U.S.
consumption coming from imports. The top countries supply U.S. imported goods are China, Canada,
10
National Association of Manufacturers. http://www.nam.org/Statistics-And-Data/Facts-AboutManufacturing/Landing.aspx
11
Minnesota Department of Employment and Economic Development (DEED), Minnesota Annual Export
Statistics (2010).
http://www.positivelyminnesota.com/Data_Publications/Data/Export_Statistics/2010_Stats/Export_Annua
l_2010.pdf
12
Jennifer Bradley, Emily Istrate and Jonathan Rothwell, Exports in the Great Lakes: How Great Lakes
Metros Can Build on Exports and Boost Competitiveness. Brookings Institute; Metropolitan Policy
Program. July 2010, pp. 8.
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Southeast Minnesota Regional Freight Study • Freight Trends and Issues
and Mexico. The growing importance of trade in the U.S. economy is a reflection of world economic
trends.
Exhibit 3 and Exhibit 4 summarize the growth in trade by major product group since 2000.
7
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Exhibit 3: World Merchandise Trade by Major Product Groups13
World Merchandize Trade
(Billions of US Dollars)
$25,000
$20,000
Agricultural products
Fuels and mining products
$15,000
Manufactures
$10,000
$5,000
$0
1980
1985
1990
1995
2000
2005
2010
Source: World Trade Organization Data, Charted by CDM Smith
Exhibit 4: U.S. Merchandise Trade by Major Product Group
13
World Trade Organization Trade Profiles Data, downloaded on March 25, 2012. Charted by CDM Smith
http://stat.wto.org/CountyProfile/WSDBCCountryPFHome.aspx?Language=E
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Southeast Minnesota Regional Freight Study • Freight Trends and Issues
US Merchandize Trade
$2,500
(Billions of US Dollars - note different scale from above)
Agricultural products
$2,000
Fuels and mining products
Manufactures
$1,500
$1,000
$500
$0
1980
1985
1990
1995
2000
2005
2010
Source: World Trade Organization, Charted by CDM Smith
Between 1960 and 1999, world merchandise trade (exports and imports) grew at an average
annualized rate of over 10 percent (in 2002 dollars). Globalization has been a significant element of
the growth in the U.S. economy. Growth in trade, its significance in the economy, and the changing
characteristics of trade partnerships can be traced to a number of factors, including:



Liberalization of world trade policies
Growth of multinational trade blocks and multinational corporations
Accelerated adoption of advanced information technologies
As the previous exhibits show, there has been a significant growth in Agricultural Products and Fuels
and Mining Products. However, the most dramatic increase has been in the trade of Manufacturing
Goods. As trade becomes an increasingly significant component of the U.S. economy, services such as
transportation and warehousing must grow to support the need for moving goods to consumer
markets. Freight transportation is also becoming more multimodal as many goods travel farther and
sophisticated supply chain management systems seek to maximize inherent benefits offered by each
mode.
For the U.S., a significant portion of the growth in international trade can be attributed to trade within
North America between the U.S. and its neighbors, Mexico and Canada. North American Free Trade
Agreement (NAFTA) has been a pivotal driver of trade increases since its implementation in 1994.
Total two-way trade between the U.S. and NAFTA partners grew a remarkable 111 percent between
1993 and 2003, while total two-way trade between the U.S. and the rest of the world grew by 79
9
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
percent. 14 Exhibit 5 shows U.S. NAFTA trade from 2004 to 2010. During that time frame, trade
increased nearly 50 percent (48/7%), with exports increasing 60 percent, versus 41 percent for
imports. Preliminary results suggested that in 2011, total NAFTA trade increased by more than 14
percent over 2010.
Exhibit 5: U.S. NAFTA Trade, 2004-2011
Total US Trade with NAFTA Countries - All Surface Modes
(in Millions of US Dollars)
$1,200,000
$1,000,000
$800,000
Total
Trade
Exports
$600,000
$400,000
$200,000
$0
2004
2005
2006
2007
2008
2009
2010
2011
Source: Bureau of Transportation Statistics (BTS) – North American Transborder Freight Data
Exhibit 6 shows NAFTA trade for Minnesota. While imports account for nearly 70 percent of
Minnesota’s NAFTA trade, NAFTA exports from Minnesota have increased 89 percent since 2004,
versus 66 percent for imports. The largest commodity traded between Minnesota and NAFTA partners
is Mineral Fuels: Oils and Waxes, a category that includes light crude often moving by pipeline, most
likely oil and natural gas from Canada. The largest NAFTA exports from Minnesota include Vehicles
other than Railway and Computer-Related Machinery and Parts.
Exhibit 6: Minnesota NAFTA Trade, 2004-2011
14
NAFTA 10 Years Later. Overview. U.S. Department of Commerce, International Trade Administration,
Office of Industry Trade Policy.
10
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Minnesota Trade with NAFTA Countries - All Surface Modes
(Millions of US Dollars)
$25,000
$20,000
Total
Trade
Exports
$15,000
$10,000
$5,000
$0
2004
2005
2006
2007
2008
2009
2010
2011
Source: Bureau of Transportation Statistics (BTS) – North American Transborder Freight Data
A Renewed Focus on Exports and Manufacturing through Innovation
In his 2010 State of the Union address, President Barack Obama announced the National Export
Initiative that established an ambitious goal of doubling U.S. exports by the end of 2014. IN 2010, U.S.
exports of goods increased 21 percent over 2009, totaling $1.28 trillion; total exports including
services exceeded $1.8 trillion. In 2011, total U.S. exports reached an all time high of $2.1 trillion, with
the exports of goods up 16% over 2010, totaling nearly $1.5 trillion. The U.S. Department of
Commerce estimates that in 2011, export trade supported 9.7 million jobs in the U.S.15
In Minnesota, total exports for 2010 were estimated at $31 billion, with 55 percent of the states
exports coming from manufacturing industries.16 In 2010, the Minneapolis/St. Paul metropolitan area
exported over $23 billion in goods, more than all other urban areas in the state combined. However,
excluding the Twin Cities area, Rochester was the largest exporting metro area in the state, accounting
for just under $1 billion in goods exports (Exhibit 7).
15
U.S. Department of Commerce, International Trade Administration. Jobs Supported by Exports: An
Update. Released March 12, 2012. http://www.trade.gov/press/press-releases/2012/jobs-supported-byexports-031212.pdf
16
Ibid. Minnesota DEED, Annual Export Statistics. pp. 13.
11
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Exhibit 7: Exports of Goods from Minnesota Metro Areas (excluding the Twin Cities),
2010
Minnesota Metro Area Exports in U.S. Dollars - 2010
(Excluding Mpls/St Paul)
$1,000,000,000
Grand Forks
St Cloud
$800,000,000
Fargo
$600,000,000
LaCrosse
$400,000,000
Duluth
Rochester
$200,000,000
$0
Based on available data, Rochester’s primary export categories are: Machinery Manufacturing,
Transportation Equipment Manufacturing, and Food Manufacturing. It should be noted that data for
some specific industry categories has been withheld to avoid disclosing figures for individual
companies. According to the Brookings Institute, exports account for 10.9 percent of the Rochester
economy and support 2,800 jobs. 17 The La Crosse/La Crescent area is the third largest goods exported
among second tier areas in the state, with exports of $625 billion in 2010. Together, the La Crosse and
Rochester areas account for roughly half (48.7%) of all goods exports from second tier urban areas in
the state.
A majority of Rochester’s exports are destined for countries in the Asian-Pacific Economic
Cooperation, a forum representing 21 Pacific Rim countries.
Exhibit 8: Rochester’s Export Destinations by International Economic Region
17
Export Nation 2012 – Minnesota. Metropolitan Policy Program. Brookings Institute.
12
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Rochester Goods Export Destinations, by Value - 2010
27%
52%
2%
19%
Asia-Pacific
NAFTA
OPEC
Other
Researchers at the Brookings Institute argue that increasing exports from metropolitan areas in the
Great Lakes Region provides an opportunity for creating future economic growth and thousands of
new jobs. The challenge facing many traditional industrial cities in the Great Lakes Region is the
ability to innovate. In this regard, Minnesota and the Southeastern region of the state appear to be
well positioned. Data from the U.S. Patent and Trademark Office shows that from 2006 through 2010,
companies in the Twin Cities were granted 11,366 patents, while businesses in Rochester were
granted 1,789 patents, ranking the two metropolitan areas 8th and 47th, respectively, out of 374
Metropolitan Statistical Areas (MSA). The Rochester Post Bulletin reported in January 2011 that IBM
broke a record for new patents coming from the Rochester facility.
A recent study by the U.S. Council on Competitiveness identified “regions” as a critical building block
for the economy. 18 “In order to compete successfully in the new global marketplace, firms must have
access to the assets – human, financial, institutional, and physical – that support innovation. Although
national and state policies create a platform for innovation, the focus of innovation activities is at the
regional level where workers, companies, educational institutions and government interface most
directly. Supporting dynamic firms requires that regions provide access to skilled labor, a solid
transportation and communications infrastructure, and a business culture that supports
entrepreneurship and risk-taking.” 19
The Impact of Technology in the New Trade Economy
A major factor in facilitating global trade has been the development and accelerated adoption of new
information technologies. Fast, reliable information technologies have:
“Enabled radically new levels of global collaboration, new ways to conduct business, and insights
about markets and customers…Firms are rethinking their total cost of production to include
factors like worker productivity, supply chain resilience and intellectual property protection –
and deciding to bring production back to America. U.S. firms are at the forefront of new
18
Council on Competitiveness, Guide for Effective Engagement of Business Leaders in Regional
Development
19
Ibid. Council on Competitiveness, pp. 5
13
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
technologies, production processes, customized manufacturing and the use of high performance
computing that could lead to a manufacturing renaissance.” 20
Remaining economically competitive in a global marketplace that continues to create new challenges
for business and industry and the multimodal transportation networks that serve them requires
agility and perseverance. Historically, the ability to produce and deliver high quality goods and
services at competitive prices was a strategic advantage for the U.S. Minnesota’s economy is
intrinsically linked to its ability to move materials, components, and finished goods within the state
and to national and international destinations. As the economy continues to be transformed, our
ability to manage the complex supply chains necessary to move these goods remains critical to a
prosperous economic future.
One area where the advancement of information technology has had a significant impact on the
modern business enterprise is supply chain management. The integration of information and reliable
transportation has allowed companies to disperse their operations to take advantage of competitive
conditions throughout the world while reducing inventories and meeting higher service requirements.
With the emergence of worldwide production markets for consumer products, supply chains have
taken on more prominence in business strategy. In manufacturing, globalization and information have
created deeply complex supply chains, involving multiple parties and many transportation
transactions. Exhibit 9 shows the international team responsible for systems and components on the
new Boeing 787 Dreamliner passenger jet.
Exhibit 9: Global Sourcing & Supply Chains: The Boeing 787 Dreamliner
20
Council on Competitiveness. Make: An American Manufacturing Movement. December 2011. pp. 8-10.
14
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Picture Source: http://siteresources.worldbank.org/INTTRADERESEARCH/Images/Boeing787.jpg
In WWII, logistics (having the right materials in the right place at the right time) played a key role in
the Allied victory. After the war logistics management entered the mainstream of American business
practice. Early logistics management focused on delivering finished products to consumers. In the
latter half of the Twentieth Century, logistics management became a legitimate business function that
continued to evolve toward a more integrated chain linking previously separate functions: material
sourcing and procurement, manufacturing, inventory management, distribution, and transportation.
As the science of logistics evolved into what is today supply chain management, businesses refocused
from just delivering products and reducing inventory, to using supply chain strategies to create a
competitive advantage and contribute to the bottom line. Exhibit 10 provides a simplistic depiction of
the logistics, supply chain evolution.
15
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Exhibit 10: Logistics and Supply Chain Management Evolution
Source: CDM Smith
Up until the 1990s, most businesses operated under what is sometimes referred to as the “push”
model of inventory management: Manufacturers would run a production line of a particular product
and then “push out” shipment to lots of retailers and distributors. Retailers were then challenged with
holding the goods inventory until the entire lot was sold. Weak sales for certain items would result in
clearance sales to clear inventories of unwanted items.
Technology enables the development of the “pull” inventory model. For leading edge retailers like
Wal-Mart, pull logistics moved the control of inventories away from suppliers: Under the pull
inventory model as customers purchase an item, information technology immediately sends and order
to the supplier that an additional product is needed. This information enabled inventory management
greatly reduced the need for tradition inventory or safety stock (i.e., excess inventory to cover
potential supply disruptions), and has also reduced lost opportunity sales. For instance, in 2002 the
Grocery Manufacturers Association estimated that U.S. grocers lost $6 billion in sales due to “out of
stock” episodes.
Today, businesses define how goods move by the nature of their supply chains: people, processes and
physical entities linked together by information and transportation. This “logistics revolution” over
the past three decades has redefined many business sectors. Wal-Mart is an often noted example of a
business that redefined the retail industry primarily due to its superior supply chain management
practices.
16
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
“Supply-chaining is a method of collaborating horizontally - among suppliers, retailers, and
customers - to create value. Supply-chaining is both enabled by the flattening of the world and a
hugely important flattener itself, because the more they grow and proliferate, the more they
force the adoption of common standards between companies (so that every link of every supply
chain can interface with the next), the more they eliminate friction at borders, the more they
encourage global collaboration.” 21
One measure of the productivity resulting from supply chain management over the past several
decades is that the cost associated with getting goods from the point of production to the final
consumer as a percentage of the economy has gone from about 11 percent of GDP in the mid-1990s, to
a low of 7.7 percent in recent years. Each percentage reduction in logistics as a portion of the GDP is
equivalent to about $125 billion that is then available to other economic activities.
As electronic-commerce “or e-commerce” (the buying and selling of goods over the internet) is
adopted by more of the population, the complexities of fulfilling orders increases. Minnesota based
consumer giant Best Buy experienced the complexities of fulfilling e-commerce orders when just days
before Christmas 2011, the retailer was forced to tell customers that it could not fill online orders
going back as far as November.
The New American Energy Revolution
“The great economic revolutions in history occur when new communication technologies converge
with new energy systems. New energy revolutions make possible more expansive and integrated
trade. Accompanying communication revolutions manage the new complex commercial activities
made possible by the new energy flows…Today, Internet technology and renewable energies are
beginning to merge to create a new infrastructure for a Third Industrial Revolution (TIR) that will
change the way power is distributed in the 21st Century.” 22
While this vision of an energy future largely free of dependence on fossil fuels may be desirable, it
does not appear to be a reality in the near-term (10 to 15 years). The current trend appears to focus
on relieving American’s from dependence on foreign oil through a combination of using new
technology for U.S. based oil and gas production, coupled with renewable energy development; what
has recently been coined as the “all of the above” policy toward U.S. energy development.
U.S. Shale Oil Plays
The traditional means of extracting crude oil has been accomplished by drilling a bole into geological
structures forming oil reservoirs. For most of the Twentieth Century pumping oil from crude oil
deposits fuel the world. Early drilling techniques for oil involved vertical wells, however modern
drilling favors slant techniques that expose a greater portion of the well pipe in the reservoir and also
well heads to be groups together.
21
st
Thomas Freidman. The World is Flat: A Brief History of the 21 Century. Farrar, Staus and Giroux
Publishers, New York. 2005. pp. 129.
22
Jeremy Rifkin. The Third Industrial Revolution: How the Internet, Green Electricity, and 3-D Printing Are
Ushering in a Sustainable Era of Distributed Capitalism. The Huffington Post Online (Huff Post Tech –
The Blog). March 28, 2012. http://www.huffingtonpost.com/jeremy-rifkin/the-third-industrialrevo_1_b_1386430.html?ref=technology
17
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
As drilling and excavation techniques evolved, the ability to extract oil from unconventional
formations has become more feasible and cost effective. While North Dakota had produced oil via
vertical drilling since the 1950s, in 2006 the state accounted for about 1 percent of total domestic
production, 9th among all U.S. oil production states. However, as world oil prices rose in recent years,
oil companies began to use new drilling techniques to tap into shale oil formations (Exhibit 11). In
1995, the U.S. Geological Survey (USGS) estimated the amount of oil technically recoverable form the
Bakken Formation in Western North Dakota and Eastern Montana at 151 million barrels of oil. In
2008, the USGS raised the estimate to between 3.0 and 4.3 billion barrels of recoverable oil – making it
the largest oil accumulation in the lower 48 states. Some recent estimates suggest the amount of oil
recoverable from the Bakken formation to be several times that of the 2008 USGS.
Exhibit 11: Lower 48 States Shale Oil Plays
Source: Energy Information Administration based on data from various published studies – Updated May 9,
2011
The technology used to extract oil and natural gas from shale formations involves a process called
hydraulic fracturing or “fracking”. The fracking process involves pumping large amounts of water,
chemicals and sand at high pressures deep underground to create fissures in the shale and allow the
oil to flow out (Exhibit 12). (Note the process shown is for natural gas extraction from shale
formations – but essentially the same process is used to extract crude oil.)
18
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Exhibit 12: Hydraulic Fracturing Process for Shale Oil and Gas Extraction
Source: Pro Publica: http://propublica.org/special/hydraulic-fracturing-national
Shale Oil Production and Frack Sand Mining
While the boom in U.S. shale oil production is changing the energy landscape, the process for
capturing shale oil is coming under increasing scrutiny. One of the major inputs to the fracking
process is “frack sand”. The best sand for the fracking process is silica sane, especially deposits
consisting of large hard, round grains. As it turns out, silica sand found along the Mississippi River
Valley in Western Wisconsin and Southeastern Minnesota is perfect for the fracking process.
To date, most of the frack sand mining has taken place in Western and Central Wisconsin: “At least 16
frac-sand mines and processing facilities are operating, and an additional 25 sites are proposed, in a
diagonal swath stretching across 15 Wisconsin counties from Burnett to Columbia…Chippewa County has
seen the most action.” (see Exhibit 13)
While most of the frack sand mining has to-date taken place in Wisconsin, moving sand from
Wisconsin to oil shale deposits in North Dakota and elsewhere in the U.S. often involves the use of
Southeastern Minnesota transportation networks. And, during 2011 and early 2012, mining
companies began buying land containing sand deposits. During 2011, both Goodhue County and
19
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Wabasha County passed one-year moratoriums on sand mining to allow more time to study the
impact.
Exhibit 13: Silica Sand Mining Operations in Wisconsin
A recent article published in the Minneapolis Star Tribune raised the specter of thousands of sand
trucks rumbling down main street Winona: “Without the epicenter of a new Midwestern gold rush; frac
sand mining…Nearly 50 mining operations have opened nearby in the past few years, producing enough
sand to send 54,000 semitrailer trucks rumbling down Winona’s main street in a year.”23
23
Josephine Marcotty. Energy boom’s uncertain cost. Minneapolis Star Tribune. March 11, 2012.
20
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
In response to concerns raised by City Council members, Winona city planning staff prepared a Frac
Sand Report that was presented to the City Council on January 6, 2012, which described the frack sand
mining and processing process as shown in Exhibit 14.
Exhibit 14: Frack Sand Mining Process – Winona Operations
Adapted from “Frac Sand Report”; Judy Bodway, Acting Winona City Manager and Carlos Espinosa, Assistant
City Planner
As noted in the Star Tribune article, truck traffic generated by sand mining operations is raising
concerns over road and bridge damage. The report produced by Winona planning staff notes that
while Winona currently has designated truck routes, the city is currently looking at establishing routes
specific to mining operations. Data from a MnDOT weigh-in-motion (WIM) scale located on MN-43
near the interstate bridge crossing over the Mississippi into Wisconsin had suggested a high number
of trucks exceeding 80,000 lbs. However, a recent article in the Winona Post indicated that the
overweight truck issue appeared to result from the WIM scale being out of calibration:
“But Mn/DOT says the scales were wrong. The WIM device was recalibrated at the end of January
and again in February, months after the scale data began showing the trend…It’s not frac trucks.
One thing is clear: the instance of overweight trucks crossing the Interstate bridge is not due to
frac sand, with zero citations issued to trucks carrying sand since October. Officials say they’ve
stopped nearly 100 sand trucks without an identified violation.” 24
24
Sarah Squires and Emily Buss. Is it overweight frac sand trucks on the bridge – No. Winona Post. March
18, 2012.
21
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Alternative Energy in Southeastern Minnesota
Recent data from the U.S Energy Information Administration (EIA) ranks Minnesota 12th among all
states in terms of net electricity generation from renewable energy resources. In 2010, Minnesota
generated 7.48 gigawatt hours of electricity from renewable sources. 25 The chart in Exhibit 15 shows
Minnesota’s electricity production for 2010 by renewable energy source.
25
U.S. Energy Information Administration, State Renewable Electricity Profiles. March 8, 2012.
http://www.eia.gov/renewable/state/
22
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Exhibit 15: Total Renewable Net Electricity Generation – Minnesota, 2010
4,792
5,000
4,500
4,000
Megawatts
3,500
3,000
2,500
2,000
1,500
1,000
500
0
840
933
340
576
Source: Data from EIA, charted by CDM Smith (Note: MSW = Municipal Solid Waste)
As the chart above shows, Minnesota’s primary source of alternative energy derived electricity comes
from wind power. According to the American Wind Energy Association, nearly 10 percent (9.7%) of
Minnesota’s electrical generating capacity came from wind turbines in 2010. Minnesota currently
ranks fifth nationally among all states for installed wind generating capacity and was fourth among
states for the most new capacity added in 2011.26
Southern Minnesota has several large wind farms, but the largest wind development in Minnesota
completed in 2011 is the Bent Tree Wind Farm located in Freeborn County near Albert Lea. The Bent
Tree Wind Farm, owned by Wisconsin Power and Light, has the capacity to generate 201 megawatts of
power using 122 turbines. The development is spread out over an area of 32,500 acres and at peak
power can supply electricity to approximately 50,000 homes.27
Changing Trade Patterns and the Panama Canal Expansion
26
27
th
America Wind Energy Association. Wind Energy Facts: Minnesota. 4 Quarter, 2011.
Milwaukee Journal Sentinel. Bent Tree Wind Farm Up and Running. February 14, 2011.
23
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Agriculture and food products are important economic sectors for Minnesota, and especially so for the
Southeastern portion of the state. Nationally, Minnesota ranks 6th among all states for agricultural
exports with ag-exports totaling $5 billion in 2010. Between 2000 and 2010, Minnesota’s top six
agricultural export markets grew a combined average of 234 percent. Currently, Minnesota’s top agexport market is China followed by Japan and Mexico. Southeastern Minnesota is a significant
contributor to Minnesota’s agricultural products as shown in the pie charts of Exhibit 16. The eleven
counties in District 6 produce about a third of the state’s corn and oats, and nearly a quarter of the
state’s soybeans. The region also produces half of the state’s sheep and lambs, and nearly a third of the
state’s milk cows.
Exhibit 16: Southeastern Minnesota’s Contribution to State Crop and Livestock
Production
Southeastern Field Crop Production - 2011
(Percentage of state total based on bushel volume)
OATS
33%
SOYBEANS
23%
0.2% Wheat
BARLEY
9%
CORN
35%
Southeast MN Livestock Data - Measured in Inventory
(Percentage of state total)
CATTLE,
COWS, BEEF
20%
SHEEP, INCL
LAMBS
51%
CATTLE,
COWS, MILK
29%
Source: USDA National Agricultural Statistics Service – Quick Stats
24
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Historically, most agricultural exports of grain from the U.S. have moved as bulk commodities and
have transited the ocean in break bulk vessels. However, growing foreign consumer demand for
“identity preserved” (IP) grains, and the ample supply of empty containers heading from the Midwest
back to Asia have resulted in more grains moving in intermodal containers. A study in 2008 by faculty
from North Dakota State University found that in 2006 and 2007 Minnesota led the nation in grain
exports via containerization (Exhibit 17). 28
Exhibit 17: Grain Container Exports by Originating State
160,000
140,000
Minnesota
Wisconsin
Illinois
California
120,000
100,000
80,000
60,000
40,000
20,000
0
2001
2002
2003
2004
2005
2006
2007
Containerized Intermodal Freight and the North American Landbridge
Supply chain management is very focused on how long it takes for goods to transit form origin to
destination. While grain is less time sensitive and more price sensitive than consumer goods, the land
side portion of intermodal transportation can be important in terms of making schedule ship loading
and departure times. The vast majority of containerized freight moving between Asia and U.S.
Midwestern markets passes through the West Coast ports of Los Angeles/Long Beach, referred to as
San Pedro Bay Ports. For Minnesota, Seattle/Tacoma is also a principal gateway due to the direct rail
connection as shown in Exhibit 18.
Sailing time from Shanghai to San Pedro Bay is approximately 12 days, to Portland or Seattle/Tacoma
is 13 days, and to Oakland is 16 days (container vessels usually stop in the Pacific Northwest or
Southern California before stopping in Oakland). Those containers are loaded onto double-stack
intermodal trains to be moved to inland distribution hubs such as Chicago, Kansas City, St. Louis,
Dallas, and Minneapolis/St. Paul. Inland distribution hubs serve as gateways to hinterland markets,
such as Southeastern Minnesota.
28
Kimberly Vachal and Mark Berwick, Exporting Local Grains via Container from an Illinois River
Agricultural Hub. Illinois Soybean Association. U.S. Soybean Export Council and Illinois Farm Bureau.
May 2008.
25
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
26
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Exhibit 18: North American Landbridge Routes from Coastal Gateways
Source: Dr. Jean-Paul Rodrigue, Department of Economics and Geography, Hofstra University
About 38 percent of containerized freight from Asia (mostly northern Asia) uses the Panama Canal to
reach ports along the U.S. East Coast ports. Currently the service duration from Shanghai to Savannah,
Georgia is 26 days (New York and Norfolk are prior ports-of-call). About 1 percent of containerized
freight from Asia (usually southern and southeast Asia) uses the Suez Canal to reach the U.S. East
Coast ports. Express service from Singapore to Savannah, Georgia is 25 days (New York is a prior portof-call) if the containership does not stop at ports in the Mediterranean to off-load/load containers.
Durations for Inland Point Intermodal (IPI) deliveries vary depending on the length of haul and the
mode employed from the West Coast ports to the inland distribution points (or hubs) and on to the
final destinations. To begin the inland journey, containers must be off-loaded from the ocean vessels
and loaded onto the intermodal trains or over-the-road trucks at or near the ports. Disembarking
containers usually requires a day or two. Train service from the West Coast ports to the inland hubs
typically requires five to seven days. Estimated intermodal transit time from the Port of Los Angeles to
St. Paul is 160 hours (6.7 days) and from Seattle to St. Paul is 113 hours (4.7 days). 29 Truck service
from the inland hubs to the consignee’s location usually requires one or two days depending on the
length of haul on the highway. In comparison, express truck service using team-drivers from any of
29
BNSF Railway website. Transit and Routing Tool. http://www.bnsf.com/bnsf.was6/siisweb/cntrl
27
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
the West Coast ports to most consignee locations in the U.S., although expensive, can be achieved in
four to five days.
A relatively recent addition to containerized services from northern Asia to the inland hub of Chicago
has to be the introduction of vessel service calling at the Port of Prince Rupert in British Columbia,
combined with express intermodal rail service provided by Canadian National Railroad (CN). (Note,
this route is not shown on the map in Exhibit 16). Phase I of the service commenced in late 2007 and
handled more than 180,000 twenty-foot equivalent units (TEUs) during its first year of operations. It
is designed to handle more than 500,000 TEUs. Phase II will enable the port to handle more than 2
million containers per year. Service from Shanghai to Chicago is 18 days (water service from Shanghai
to Prince Rupert is 9 ½ days, 1 day for off-loading, 5 ½ days rail duration to Chicago, 1 day rail
terminal off-loading, 1 day delivery drayage).
The Impact of the Expanded Panama Canal on Southeastern Minnesota
Aside from some industrial products that trade between Minnesota and Europe, it is likely that only a
small amount of container freight bound to or departing from Minnesota passes through port facilities
on the East Coast. While some Asia trade passes through eastern ports via the Panama Canal, that
routing for products moving to or from Minnesota would be very inefficient. East Coast port volumes
have grown far slower than has been the case for West Coast ports. One reason for the slower volume
growth in the east is that the locks in the Panama Canal limit ship size and the throughput of the canal
is limited to approximately 40 vessels per day (14,000 per year). Canal Water Time (CWT), the
duration it takes to transit from the Pacific to the Atlantic, averages 15 to 30 hours – including wait
time at the locks. The Panama Canal, however, has been a significant gateway for bulk grain
movements from the Midwest shipped on the Mississippi River to port facilities in the Gulf Coast
(Exhibit 19).
Exhibit 19: U.S. Grain Exports
28
Southeast Minnesota Regional Freight Study • Freight Trends and Issues
Source: Tim Baird, Jason Bittner, Robert Gollnik and Spencer Gardner 30
The Panama Canal Authority is currently expanding the capacity of the Canal, with the completion of
new locks scheduled by 2014. The expansion project includes construction of two new sets of locks,
one each on the Atlantic and the Pacific sides, as well as the deepening and widening of existing
navigation channels. When completed, the expansion will allow for the passage of larger, “postPanamax” or “New Panamax” vessels. The new lock chambers and expanded channels will
accommodate longer, wider and deeper vessels than at present. The container vessels able to transit
the expanded Canal will have the capacity of up to approximately 12,000 TEUs, compared to the
maximum capacity of about 4,500 TEUs for current Panamax container vessels.
The ability to move more containers or bulk cargo on a given vessel lowers the cost of shipping cargo
per TEU (for container trade) or per ton (for bulk trade). The actual amount of cargo that may divert
due to Panama Canal expansion will depend on the total cost of the shipment from origin to
destination as well as the time sensitivity of the cargo:
“Although there is considerable uncertainty among grain transportation professionals and industry
observers on the effects of the Panama Canal expansion, it is likely that the expansion project will
result in faster transit times and lower waiting times, lowering the time costs of the all-water route for
grain. Growth in grain export volumes from the Pacific Northwest and Gulf Coast is anticipated to
outpace California’s volumes, and increasing quantities of specialty grains will be moved in
containerized modes. In the longer term, the ability of the new set of locks to move much larger
vessels may prove significant to exporters’ decisions to ship grain from Gulf Coast ports. However,
limitations on the size of vessels that Gulf and East Coast ports can accommodate will, in the near
term, limit opportunities for grain exporters to use post-Panamax bulk and container ships.” 31
30
Tim Baird, Jason Bittner, Robert Gollnik and Spencer Gardner. Understanding the Consequences of the
Panama Canal Expansion on Midwest Grain and Agricultural Exports.
31
Ibid. Baird, Bittner and Gollnik.
29